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Energy Fund downplays 'secret' oil sale

May 26 2016 13:32

Citizen fears about hydraulic fracturing, a drilling procedure used to pry oil and gas from rock deep underground, have made "fracking" the hottest political question in Colorado. (Ed Andrieski, AP)

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Cape Town – The Central Energy Fund on Thursday defended its "secret" sale of oil, saying SA still has access to 90 days of crude oil reserves, which is 30 days more than the required volumes.

It was responding to a story in the Business Day on Thursday, which said South Africa’s Strategic Fuel Fund (SFF) had sold R5bn or 10-million barrels of crude, “close to its entire stockpile, in a closed tender at rock-bottom prices without obtaining permission from the Treasury”.

“Strategic stockpiles are a country’s reinsurance policy in the event of a sudden supply crisis. The fund is required to hold stock for 20 days cover. It now has 300 000 barrels, less than a day of cover,” the Business Day story, titled “Strategic fuel stock sold off secretly”, explained.

However, the CEF board said when the SFF started the process of the rotation of strategic stocks, the country had 21 days reserves of strategic stocks.

“After the December 2015 rotation, the country now has access to 90 days reserves which is 30 days more than the required volumes. This allows for South Africa to be able to absorb any market variations and provides a buffer for three months in the case of any eventuality.”

SFF director Tseliso Maqubela told Reuters on Thursday that it sold the 10 million barrels of crude in December at $28 a barrel to a unit of Glencore, Vitol and Taleveras. "The condition of the sale was that the oil (will) not be exported and so the government considered it to be part of its strategic reserve stockpile."

DA to refer 'violation' to AG

Democratic Alliance MP Pieter van Dalen was not convinced.

In a statement on Thursday, he accused Energy Minister Tina Joemat-Pettersson and CEF chief executive Sibusiso Gumede of colluding without permission from Treasury and thus contravened section 54(2d) of the Public Finance Management Act (PFMA).

“Accordingly the DA will refer this violation of the PFMA to the auditor general in order to obtain a full report of the sale which will reveal the full list of parties involved including the incumbent accounting officer, Minister Joemat-Pettersson and CE Gumede as stipulated in the criminal proceedings, section 86(2) of the PFMA. Failing which the DA will urge Treasury to pursue criminal charges as stipulated by the PFMA.”

Based on misunderstanding

The CEF said that “the notion that the country is put at risk through this rotation is factually incorrect”.

It believes that the impression created by the Business Day story is “based on the misunderstanding of the management of strategic stock”.

It said the story made “particular incorrect assertions, which if not corrected may create uncertainty in an already volatile oil market”.

It said no approval is required from the Minister of Finance to sell or rotate strategic fuel stocks.

“We wish to reiterate that the integrity of the strategic stocks is secured and that the group will be able to respond to any challenge should it arise.”

Gamede told Business Day that the R5bn raised from the sale was being held by the CEF until further instructions by the ministers of energy and finance.

DA: Rotation did require Treasury sign-off

“The reasons given … was a rotation of unsuitable stock, which does not require permission from Treasury and it has been done before," said Van Dalen.

“However, under the PFMA, the sale of any significant state asset, which in this case amounts to R5bn, requires approval from Treasury and it is also stipulated in the CEF Act.

"This feeds into a narrative that the CEF and PetroSA are in financial trouble and are looking for a cash injection. PetroSA has been plagued by projects that have gone south, including Ikhwezi and Irene.

“The DA will continue to fight for taxpayers' money that needs to be accountable, transparent, well managed and aimed at growing the economy in order to reduce the appalling number of 8.9 million jobless South Africans.”

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